Bank-card fees heaped upon child-support recipients

It was a good year for collecting child support in California. More aggressive collection efforts helped the state bring in $38 million more in the fiscal year that ended in June. San Diego ranked 22nd out of 58 counties for getting parents to pay support. But some beneficiaries are not happy with a new system for distributing the money.

In February, the state contracted with Wells Fargo Bank and Affiliated Computer Services, a Xerox company, to offer child-support payments on a prepaid debit card. Dozens of states now use electronic-payment cards to deliver various government benefits.

The state saves money, having fewer checks to print and mail. The companies make money. Some families who choose the card over payment by check or direct deposit to a personal bank account, however, are losing money.

The fees associated with California’s EPPICard child-support payment system have upset some users.

“It’s outrageous,” says Kim Sever, a New Jersey parent who launched a website in 2009 to oppose the EPPICard, an ATM debit card issued by Wells Fargo, in this case for child support.

Sever criticizes the card’s fees, which she tracks on her website, comparing them by state. Her chart shows that Californians pay some of the highest charges for common transactions.

“Not too many people read the fine print or balance their checkbook, so they don’t even realize that the money is being taken,” she says.

California’s EPPICard terms describe various rules and fees, which change at non–Wells Fargo automated teller machines. A balance inquiry costs $.60. After four free monthly cash withdrawals, each additional one costs $1.75. Only one free monthly decline for insufficient funds is allowed.

There are even fees for calling customer service more than three times per month, $.50 per call, including automated balance checks.

“How can there be a fee for calling customer service?” Sever fumes.

According to the card’s website, “fees can be avoided by asking for cash back with purchases.” And cardholders can view their account online for free. “The card has some problematic fees, especially the balance inquiry fee, the ATM decline fee, and the fairly high ATM fee,” says Lauren Saunders, managing attorney of the National Consumer Law Center, which is trying to get states to cut better deals for customers with the banks and companies involved.

Californians don’t have to accept the debit card. Checks are still available. “Another option for our customers is no-fee direct deposit,” says Connie DaMant, assistant director of legislative and external affairs at the Department of Child Support Services.

Consumer advocates say that all states should offer direct deposit to recipients’ own bank accounts, which typically have better terms.

For those who have no bank account, the debit card does eliminate check-cashing service fees.

According to state data, of the three payment options, the prepaid debit card was the one least chosen in July. Of the 1,214,578 child-support payments disbursed, 26 percent were on a card, 27 percent were by check, and 47 percent were made by direct deposit.

That means over 300,000 Californians have a card, and the state doesn’t know how much cardholders are losing in fees.

“The department has not requested a report on bank fees collected from EPPICard,” DaMant says.

“The state should track the costs to consumers,” Saunders says, but they often don’t.

For years, banks pursued the untapped market of government benefits, which helps drive the booming prepaid-card market, according to the research firm Mercator Advisory Group.

In 2010, California also began using prepaid debit cards to distribute unemployment benefits, paid family leave, and disability insurance.

“The bulk of the profits from a prepaid-card program come from the interchange fees that merchants pay, though fees on consumers do contribute,” Saunders says.

Those fees add up. The Western Center on Law and Poverty estimated that surcharges paid by California’s poorest families, welfare recipients, exceeded $16 million last year.

Prior to the EPPICard, California provided electronic child-support payments on a Bank of America Visa card, first issued in 2004. The EPPICard has new features, such as the option to receive low-balance alerts by email, phone, or text, but it also has new fees, including the $.60 teller-machine balance inquiry.

“A change in bank was made due to the change in the state disbursement unit vendor,” DaMant says of the new service provider, Affiliated Computer Services. The contract was awarded through a competitive bid process, she says.

Sever’s website, noeppicard.com, isn’t alone. Another site slams the California Employment Development Department’s “EDD” card, used to pay unemployment compensation. On EDDsucks.com, people “share EDD stories and trouble.” Then there’s the Department of Consumer Affairs website, an independent consumer news and resource center, where the EPPICard has received hundreds of complaints, many over fees and poor customer service.

One unemployed San Diegan, who wants to be anonymous, isn’t complaining. Unemployment recipients can choose direct deposit. The state deposits benefits into a Bank of America account. “I just transfer all the funds to my real bank account, so it’s not a hassle for me,” she says. And since her bank considers the transfer a direct deposit, “they waive my monthly fee.”

In May 2011, Saunders coauthored a report on unemployment prepaid cards and junk fees for the National Consumer Law Center, which rated California’s Bank of America unemployment card the best in the nation. Its consumer fees are under $2 million a year, Saunders says.

“The issues are pretty much the same,” she says of the various benefits cards.

At a U.S. Senate subcommittee hearing on the subject in March, Saunders discussed the potential for prepaid cards to help “the unbanked” enter the modern electronic payment system.

“But we’re not there yet,” Saunders warned.

Three years after Sever posted her website, she continues adding to the list of states that have gone plastic, updating information to give consumers everywhere a clear guide to the fees. There is no sign the opposition is working, she says. “It’s not encouraging.”

But some states have listened.

Last November, after Saunders’s report, Oregon lowered fees on its debit card for child support and unemployment benefits, offering unlimited free automatic-teller-machine and over-the-counter cash withdrawals. And last October, Colorado adjusted fees on its unemployment card, a press release stated, “thanks to the Department of Labor and Employment’s renegotiated contract with J.P. Morgan Chase.” The new contract saves cardholders more than $500,000 each year.

That’s a lot for a small change, according to the center’s report. “Even a few dollars can mean a meal skipped.” ■